Record Customer Losses And Low ARPU: T-Mobile USA Needs Something Sticky

In January, when T-Mobile’s top executives appeared before investors in New York, they laid out a strategy to add $3 billion more to the U.S. mobile operator’s sales by 2014. But record contract subscriber losses, combined with a fightback plan aimed at low-cost bundles, leave one to wonder whether the operator may be challenged to meet that goal, and what it will do to turn things around.

T-Mobile is currently the fourth-largest mobile operator in the U.S., a position it may not be advancing any time soon: in its quarterly earnings released on Friday, T-Mobile reported that it lost 318,000 of its higher-revenue contract customers in the quarter that ended December 31, 2010. That was a huge drop compared both to the quarter before, and to the quarter a year ago, when it also lost customers: 60,000 in Q3 2010 and and 117,000 in Q4 2009.

T-Mobile made up for some of that subscriber loss with growth in pre-pay subscribers, which were up 295,000 for the quarter — although still a disappointing gain compared to the 488,000 prepay customers it picked up in Q4 2009. The main problem here is that pre-pay tends to bring in lower revenues, and even less so because many of T-Mobile’s gains were from MVNO partners, who resell T-Mobile services under their own brands (and therefore share the revenues with it). The operator now has 2.8 million MVNO customers.

Overall T-Mobile now has 33.73 million customers, down from 33.79 million at the same point a year ago. Total revenues for Q4 were $5.36 billion, a decline of 0.9 percent from $5.41 billion for Q4 2009. Net income $268 million, a 12.4 percent drop from $306 million for the same quarter a year ago.

Lowest and highest. While AT&T (NYSE: T) and Verizon reported ARPUs of more than $60 for contract subscribers in their last earnings, T-Mobile said in Q4 its contract ARPUs were $52 (and $46 if you average in pre-pay users). The company says that this was a $1 increase compared to 2009, and that data spend more than made up for a decline in voice revenues.

One of the company’s bigger shortcomings might be in devices: T-Mobile did recently start to sell a new version of the popular Samsung Galaxy S (which works with the operator’s “4G” network), that is a phone model that has been out for months already, and will be competing against an army of newer Android smartphones from T-Mobile’s rivals.

Meanwhile, T-Mobile has largely been pushing a budget line, for example with data plans starting as low as $10 and plans to introduce two new Android-based devices, the Samsung Galaxy Mini and the T-Mobile Move, at prices ranging between $50 and $75 on contract.

The ironic thing is that in the middle of its budget marketing, T-Mobile will also be looking to attract high-end users, too. This spring it will be launching the G-Slate, the new, highly specced Android tablet from LG (SEO: 066570). Could the G-Slate be T-Mobile’s hero device? Maybe not: some have speculated could cost more than $1,000 dollars when it goes on sale (reportedly March 23), based on pricing in Germany of €999.

Network. At this point, the company is pinning its 4G hopes not on LTE, but HSPA+, which will give users a maximum of 42 Mbps on the downlink by the end of this year, and 84 Mbps by 2012 (that’s the theory, at least). The lack of an LTE strategy may come from a need to contain costs, but it also is because T-Mobile lacks the spectrum for it.

T-Mobile may look to double up with another operator for more spectrum — Clearwire (NSDQ: CLWR) would be an obvious partner, and the one that has reportedly been in the works — but there has been no news on this yet.

Meanwhile, T-Mobile’s parent, Deutsche Telekom (NYSE: DT), has said that it plans to sell T-Mobile USA’s 7,000 cell towers and lease them back, a transaction that could generate a billions in profit that would be used towards spectrum investment.

The larger company seems to be facing as many challenges for growth closer to home as it does in the U.S. Deutsche Telekom reported a net loss of €582 million ($800 million) for Q4 compared to a loss of €3 million for the same period a year ago, and well off from analysts’ expectations of a profit of €572 million.